In India mutual fund industry’s asset under management (AUM) has been growing at a rapid pace. The total AUM has reached around Rs 25.50 lakh crore in August 2019.
The asset under management of Debt, Equity and Hybrid schemes at the end of August 2019 stood at Rs 13.22 lakh crore, Rs 7.16 lakh crore and Rs 3.38 lakh crore, respectively.
We have thousands of Mutual Fund Schemes that are currently available in the market. It is a highly challenging task for any advisor / investor to select best mutual fund schemes out of these thousands of schemes.
There is no doubt that Mutual Funds are one of the best investment options for long term wealth creation. However, if you pick wrong MF schemes that do not match your investment objective(s) and time-frame then it could spell disaster for you.
Even if you pick right fund as per your investment strategy, it may not perform as per your expectations due to plethora of factors which are not in your control.
Another reason could be, your fund manager’s investment strategy may not click and results in not-so-great performance (or) your fund manager may change.
The Fund manager’s ability to generate EXTRA returns over and above the Fund’s benchmark has been put to test after recent SEBI’s re-categorization rules.
This has resulted in sudden in-flux of investments to Index based funds (Passive funds).
For example : The AUM of index funds has gone from Rs 5971.84 crore in August 2019 to Rs 6571.96 crore in September, and to Rs 7622.61 crore in October 2019.
Given this scenario, it’s highly challenging and tricky to pick the best & top mutual fund schemes to invest in 2020 & beyond.
In this post, let us analyze – Which are the Top rated Equity SIP Mutual Funds to invest for long term in 2020-2021? Best Equity Funds for 2020…
Top 15 Best Mutual Funds to invest in 2020-21 | Best SIP Equity Funds
Below are the best Equity Mutual Funds to invest in India for 2020 & beyond…
- UTI Nifty Index Fund (Large-cap)
- Axis Bluechip Fund (Large-cap)
- ICICI Prudential Bluechip Fund (Large-cap)
- Kotak Standard Multi-cap Fund (Diversified)
- Aditya Birla Sun Life Equity Fund (Diversified)
- SBI Magnum Multi cap Fund (Diversified)
- Axis Mid-cap Fund (Mid-cap)
- Franklin India Prima Fund (Mid-cap)
- Franklin Smaller Companies Fund (Small-cap)
- Axis Long Term Equity Fund (ELSS – Tax Saving)
- Invesco India Tax Plan (ELSS – Tax Saving)
- Aditya Birla Sun Life Tax Relief ’96 Fund (ELSS – Tax Saving)
- HDFC Hybrid Equity Fund
- ICICI Pru Equity & Debt Fund
- SBI Equity Hybrid Fund
I have considered both, the past performance and risk ratios of mutual funds to shortlist top rated Equity mutual fund schemes.
Below image gives you an idea on the parameters (to know, how consistent the funds have been..?) that one can consider while shortlisting right mutual fund schemes.
Let’s now analyse category-wise best equity funds;
Best Large Cap Mutual Funds 2020-21
Based on the past performance & risk ratios, I have short-listed below large-cap funds for the review;
The final list of best Large Cap Equity Funds as per my analysis are; UTI Nifty Index Fund, Axis Bluechip Fund & ICICI Prudential Bluechip Fund.
- I have removed Aditya Birla Frontline Fund and SBI Bluechip Fund, which were part of my last year’s best equity large cap funds list. These are decent funds but the risk-return trade off is not in favor of actively managed large-cap funds.
- Most of the large-cap funds have not out-performed their benchmark indices in the last couple of years (after the implementation of SEBI’s re-categorization rules).
- If you have invested in an active large-cap fund or planning to invest, it is now prudent to go for large-cap based index funds than actively managed large-cap Funds.
- In this calendar year, most of the shares of giant and large cap companies have performed well and this is reflected in the performance of index funds like UTI Nifty index Fund. The only fund that has beaten UTI Nifty fund in the last one year (from the above list) is Axis Bluechip Fund.
- So, considering the past performance, risk-return trade off and cost, advisable to stick / switch to large-cap based index funds.
Best Multi-Cap Mutual Funds 2020-21
In my view, below are the best multi-cap / diversified Equity funds for 2020;
- Kotak Standard Multi-cap Fund
- Aditya Birla Equity Fund
- SBI Magnum Multi-cap Fund
I have shortlisted the above funds from a list of total 9 consistent top performers.
- From my last year’s list, I have removed Franklin Equity Fund. If you are an existing investor of this fund, you can give some more time for this one.
- Kotak Multi-cap fund has been performing well with relatively low standard-deviation. The fund has given around 14% returns in the last 10 years. It currently has an allocation of around 77% to large-cap stocks.
- Though Birla Equity Fund has not been able to repeat its previous best performance, its long-term track-record (23% returns since inception) makes me to retain it in the list. Let’s track its performance for one more year! The fund has an allocation of around 25% to mid/small cap stocks.
- SBI Multi-cap fund has been able to generate decent returns with low levels of volatility. The fund has an allocation of around 36% to mid/small cap stocks.
- You may also consider Parag Parikh Long Term Equity Fund for its good downside protection and recent performance. Do note that this fund has exposure to international equity markets.
- DSP Equity Fund has been performing well in the last few years. But, the fund’s performance has been very volatile. ICICI Multi-cap fund has given stable returns with low-risk profile.
- In case, you wish to avoid actively managed large-cap and multi-cap funds then can consider a combination of index funds like UTI Nifty Index Fund and UTI Nifty Next 50 Fund (this is more like a large-mid-cap oriented combo).
Best Equity Mid-cap Mutual Funds 2020
In my view, below are the best mid and small cap Equity funds for 2020;
- Franklin India Prima Fund
- Axis Mid-cap Fund
- Franklin Smaller Companies Fund
I have considered below Mid-cap Funds for the review;
The various important risk ratios of the above Mid-cap oriented Equity funds are as below;
- The fantastic performance of Axis mid-cap fund has compelled me to replace HDFC mid-cap opportunities fund. In case, you are an existing investor of HDFC fund, you may continue with your investment plan.
- Axis Mid-cap Fund, a relatively new entrant, has given fantastic returns of around 18% in the last 3 years, with very low risk profile. The fund has an allocation of around 77% to mid-cap stocks and 24% to large-cap stocks.
- Around 30% of Funds’ portfolio an exposure to Financial services and 20% to Consumer Cyclical Sectors.
- Franklin Prima and Smaller Companies fund have relatively lower risk profile than their peers and have generated consistent returns.
- Franklin Prima Fund has a current allocation of around 80% to mid-cap stocks.
- L&T mid-cap has also been one of the good performers. Do note that the Fund has got a new fund manager on board.
Best ELSS Tax Saving mutual Funds 2020-21
The final list of best ELSS Funds as per my analysis are;
- Axis Long Term Equity Fund
- Invesco India Tax Plan
- Aditya Birla Tax Relief ’96 Fund.
For a detailed analysis, you may kindly go through my article on Best ELSS Funds to invest in 2020-21..
Best Equity Hybrid Funds 2020-21
Below are the best aggressive Equity Hybrid (Balanced) Funds ;
- HDFC Hybrid Equity Fund
- ICICI Prudential Equity & Debt Fund
- SBI Equity Hybrid Fund
The important risk ratios of some of the top performing Hybrid Equity funds that I have considered for the review are as below;
- ICICI Pru Equity & Debt Fund has been a consistent performer with low volatility and has a good downside protection.
- Around 60% of fund’s equity allocation is in large-cap stocks.
- The Fund has 22.2% investment in Debt Securities.
- HDFC Hybrid Fund has given the best returns in the last 10 years when compared to its peers in the above list.
- Around 43% of fund’s equity allocation is in large-cap stocks & the fund has been little aggressive with its allocation as it has invested 20% of its equity portfolio in Mid/Small cap stocks.
- The Fund has 27.8% investment in Debt of which 8.6% in Government securities, 18.35% of funds invested in very low risk securities..
- The returns generated by SBI Equity Hybrid fund since its launch (1995) are around 16%. Though this fund generates decent returns in bull market, it does not have great downside protection when market’s performance turns negative.
My Latest Mutual Fund Portfolio details
I have my investments in four funds – HDFC Hybrid Equity Fund, Axis LTE Fund (Tax saving), UTI Nifty Next 50 Index Fund, Franklin Smaller Companies Fund. My spouse invests in Aditya Birla Tax Relief ’96 Fund for tax saving & wealth accumulation purposes.
Mutual Fund Capital Gain Taxation Rules for FY 2019-20 / AY 2020-21
Below are the capital gain tax rates on sale of mutual fund units for FY 2019-20;
- The STCG (Short Term Capital Gains) tax rate on equity funds is 15%.
- The STCG tax rate on Non-Equity funds (or) Debt funds is as per the investor’s income tax slab rate.
- The LTCG (Long Term Capital Gains) tax rate on equity funds is 10% on LTCG exceeding Rs 1 Lakh.
- The LTCG tax rate on non-equity funds is 20% (with Indexation benefit)
Some Important Points to ponder about Mutual Fund Investments :
- Identify your Goals : Majority of us identify the products first and then try to shortlist best investment avenues. An investor has to first identify his/her financial goals and then try to short-list best available options. This is applicable for mutual fund investments also.
- Set you Asset Allocation : Asset allocation is an exercise to invest across various avenues such as time-deposits, bonds, equities, gold etc., Set your allocation based on your investment objective, time-horizon and risk tolerance. For example : If your investment horizon is say 10+ years, objective is to wealth accumulation, you can consider an asset allocation of Equity to Debt as 60:40. Besides investing in Equity oriented products, it is equally important to invest in debt-oriented products (like PPF, EPF, VPF, Debt Funds etc.,) as well.
- Is it good to invest in multiple Schemes from same Fund category? – Kindly do not invest in too many funds especially within the same fund category. Over-diversification is not beneficial and may lead to high portfolio overlap.
- Consistency is the key parameter : A ‘good mutual fund scheme’ is the one that consistently manages to outperform its category returns and also it’s Benchmark’s. It is prudent to be with the consistent performers for long-term goals instead of churning your portfolio based on Star ratings or recent performances of the funds.
- If you observe, the recent stellar performances have come from equity funds managed by the fund houses like Axis, Kotak, Mirae, L&T…The funds managed by HDFC, Franklin & Birla have taken a back seat. But, do not churn your portfolio based on recent performances alone. Look for consistency of returns and then take decision!
- I am 60 years old, can I invest in Equity Funds? – Invest in Equity funds based on your future goals & financial resources and not based on your current age. For example – If you are a retiree (say 65 years) and have regular income which is more than your monthly living expenses, you can surely invest a portion of your surplus income in hybrid or equity oriented mutual funds.
- Importance of Portfolio Performance – If one of the schemes in your MF portfolio is not performing well, do not immediately churn your portfolio. Also, do not churn your portfolio very often based on fund star ratings. The negative consequences of regularly churning the portfolio are undeniable. Do track that scheme’s performance for sometime (say 1 or 2 years) before deciding to drop it from your portfolio. Sometimes, it is prudent to analyze the overall portfolio performance than to get too worried about individual fund’s performance. Also, have realistic return expectation from your investments.
- Shall I invest in Focused/Value oriented MF Schemes? – If you have created a core portfolio with say a Large cap fund / Index Fund, mid-cap fund (or index based funds) & Hybrid fund, you may invest a portion of your investible surplus in focused, value oriented, Funds of funds or Theme based funds. Ex : Parag Parikh Long Term Value Fund, Franklin India Focused Equity Fund, Axis Focused 25 Fund etc.,
- Shall I pick Index Funds? – If you are not comfortable investing in actively managed Funds, you can consider investing in Index based Funds. Ex : UTI Nifty 50 Fund (Large-cap), UTI Next Nifty 50 Index Fund (Large + Midcap) etc., It makes sense, to add one Hybrid Equity Fund to your Index based portfolio, to manage the volatility.
- Do I need to invest in Multi-cap Funds? – If you have a large-cap fund and a mid-cap oriented fund, I believe that its OK not to have a separate multi-cap fund in your portfolio. You can consider adding a Hybrid Fund to your portfolio. In case, one of your investment objectives is ‘tax-saving’ then can consider investing in an ELSS Fund (this can be treated as a multi-cap style fund, example – Birla Tax Relief Fund).
- SIP or Lump sum? – Systematic Investment Plan (SIP) inculcates financial discipline. However, it is not a fair comparison to equate SIPs with investing in a lump sum. Both have their own pros and cons. It is better to have SIPs in place and at the same time, you can make additional investments (lump sum) when you believe that markets are down.
- Suggest you not to remain invested in equity oriented funds till the goal target year. You may consider redeeming MF units by starting SWP (Systematic Withdrawal Plan)may be 2 to 3 years before the goal year. You can re-invest this amount in safe investment avenues. You may also re-balance your portfolio based on your Asset-allocation strategy (Equity : Debt allocation).
- DIY / Advisor – If you are a DIY investor, pick Growth and Direct plans. In case, you are not comfortable investing in Mutual funds on your own or do not have the required time, do engage with a fee-only Financial planner.
Continue reading :
- Mutual Fund Portfolio Overlap Comparison Tools
- What is Portfolio Tracking and Why Should I do it?
- List of all Popular Investment Options in India – Features & Snapshot
- RBI’s statistical data on Indian Household Investments & Savings (2018-19) | How & Where do we save & invest?
- When should you sell your Mutual Fund Schemes? | When to exit a Mutual Fund?
- How to get Mutual Fund units transferred upon death of a Unitholder?
Kindly note that the above list of top & best mutual funds 2020 is not an exhaustive one. Mutual funds’ returns are not guaranteed, their values/returns change frequently and past performance may not be repeated. MFs are subject to various market risks.
(Data Source & references : Valueresearchonline, Moneycontrol, Morningstar, Freefincal & The Economictimes) (Post first published on : 26-November-2019)